What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-12-09 compared with 2022-09-08 · 114 added, 98 removed, 200 unchanged (51% of the section changed)

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the ongoing and potential impact of the COVID-19 pandemic on our operations or the operations of our supply chain or our customers;

risks associated with the overall economy, including escalating trade tensions between the U.S.

risks associated with the overall economy, including higher inflation and escalating trade tensions between the U.S.

the commercial success of our customers’ products;

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Our SoC designs fully integrate AI, computer vision functionality, HD video processing, image processing, audio processing, and system functions onto a single chip, delivering exceptional video and image quality at high compression rates, differentiated functionality and low power consumption.

These CV-based technologies are allowing us to address a broader range of markets and applications requiring AI video features, including IP security cameras, a variety of automotive cameras, consumer cameras, and industrial and robotic markets and applications.

We anticipate that our CV technology will also enable us to capture more content per electronic system and increase our average selling price.

O ur development efforts are focused on SoCs that provide both human viewing and computer vision functionality.

As a result, we believe that our future revenue growth, if any, will significantly depend upon our ability to expand within camera markets with our AI and computer vision technology, particularly in the professional IP security and home security and monitoring camera markets, as well as emerging markets such as AI-enabled security cameras, AI-based driving applications, including driver monitoring systems, advanced blind spot detection, object detection, and deep learning algorithms for HD mapping solutions, automotive advanced driver assistance systems , or ADAS, applications, and industrial and robotics markets.

As a result, we believe that our future revenue growth, if any, will significantly depend upon our ability to expand within camera markets with our AI and computer vision technology, particularly in the Internet of Things, or IoT, markets, as well as emerging markets such as AI-enabled security cameras, AI-based driving applications, including driver monitoring systems, advanced blind spot detection, object detection, and deep learning algorithms for HD mapping solutions, automotive advanced driver assistance systems , or ADAS, applications, and industrial and robotics markets.

We expect our research and development expenditures to increase in comparison to prior periods as we devote additional resources to the development of innovative video and image processing solutions with increased functionality, such as AI and CV capabilities, and as we target new markets .

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Volume production may begin within 9 to 18 months after a design win, depending on the complexity of our customer’s product and other factors upon which we may have little or no influence.

In general, design cycles will be longer in the OEM automotive and industrial and robotics markets than in the IP security and consumer device markets.

In general, design cycles will be longer in the OEM automotive and industrial and robotics markets than in the IoT markets.

Once our solutions have been incorporated into a customer’s design, they are likely to be used for the life cycle of the customer’s product.

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Even if we obtain a design win and our SoC remains a component through the life cycle of a customer’s product, the volume and timing of actual sales of our SoCs to the customer depend upon the production, release and market acceptance of that product, none of which are within our control.

A portable consumer device typically has a product life cycle of 6 to 18 months, while an IP security camera typically has a product life cycle of 12 to 24 months.

An IoT product typically has a life cycle of 6 to 24 months.

We anticipate that product lifecycles will typically be longer than 24 months in the OEM automotive and industrial and robotics markets, as new product introductions occur less frequently in these markets.

Financial Highlights

We recorded revenue of $80.9 million and $171.2 million for the three and six months ended July 31, 2022, respectively.

This represented increases of 2.0% and 14.5%, respectively, as compared to the same periods in the prior fiscal year.

Despite lower product unit shipments affected by supply chain disruptions in the semiconductor industry, continued adoption of our CV-based solutions as well as increased revenue from nonrecurring engineering (NRE) project services resulted in higher revenue in the automotive camera, professional IP security camera and consumer markets, especially in the North America and Asia regions other than China.

For the three months ended July 31, 2022, the increase in revenue was partially offset by decreased revenue from our two largest China customers in the professional IP security camera market due to lower demand affected by pandemic lockdowns in China.

We recorded operating losses of $20.2 million and $30.7 million for the three and six months ended July 31, 2022, respectively, as compared to operating losses of $6.0 million and $16.1 million for the three and six months ended July 31, 2021, respectively.

The increased operating losses were primarily due to increased operating expenses, partially offset by increased revenue and gross profit.

The increased operating expenses primarily related to higher personnel costs associated with headcount growth and benefit programs, increased chip tape-out costs due to the timing and number of chips in development, as well as increased engineering-related expenses for supporting automotive, robotic and industrial applications of our CV-based solutions.

We generated cash flows from operating activities of $33.0 million for the six months ended July 31, 2022, as compared to $9.9 million for the six months ended July 31, 2021.

The increased cash flows from operating activities were primarily due to higher collection from accounts receivable associated with the timing of sales and lower inventory purchases due to supply chain disruptions in the semiconductor industry, partially offset by decreased liabilities associated with employee benefit payments and the timing of payments to our suppliers.

As of July 31, 2022, we have invested $100.0 million of cash in money market funds and debt securities of corporations.

All of the investments are denominated in United States dollars and reported at fair value as available-for-sale securities in our condensed consolidated balance sheets.

We recorded revenue of $83.1 million and $254.3 million for the three and nine months ended October 31, 2022, respectively.

This represented a decrease of 9.8% and an increase of 5.2%, respectively, as compared to the same periods in the prior fiscal year.

Our revenue for the three months ended October 31, 2022, has been primarily impacted by fewer product unit shipments driven by customer efforts to revert their inventory closer to pre-pandemic levels, as component lead times contract.

Continued adoption of our CV-based solutions, which have higher average selling prices, and increased nonrecurring engineering (NRE) project services partially offset this decrease from fewer product unit shipments.

Our revenue for the nine months ended October 31, 2022, increased compared to the corresponding period in prior fiscal year primarily due to continued adoption of our CV-based solutions which have higher average selling prices and increased NRE project services, partially offset by a marginal decline in product unit shipments driven by customer efforts to revert their inventory closer to pre-pandemic levels, as component lead times contract.

We recorded operating losses of $20.1 million and $50.8 million for the three and nine months ended October 31, 2022, respectively, as compared to operating losses of $1.2 million and $17.3 million for the three and nine months ended October 31, 2021, respectively.

The higher operating losses were primarily due to higher operating expenses.

For the nine months ended October 31, 2022, the higher operating expenses were partially offset by increased revenue and gross profit.

The increased operating expenses primarily related to higher personnel costs, including stock-based compensation, associated with headcount growth and benefit programs, increased chip tape-out costs due to the timing and number of chips in development, as well as increased engineering-related expenses for supporting automotive, robotic and industrial applications of our CV-based solutions, partially offset by decreased professional service expense associated with the acquisition of Oculii Corporation, or Oculii, in the prior fiscal year.

We generated cash flows from operating activities of $39.0 million for the nine months ended October 31, 2022, as compared to $18.2 million for the nine months ended October 31, 2021.

The higher cash flows from operating activities were primarily attributable to higher collections of accounts receivable associated with the timing of sales and lower inventory purchases due to improved supply chain constraints in the semiconductor industry, partially offset by increased net loss adjusted for certain non-cash items and decreased liabilities associated with employee benefit payments and the timing of payments to our suppliers.

In the second quarter of fiscal year 2023, we resumed our investments in money market funds and debt securities.

The debt security investment portfolio consists of commercial paper, debt securities of corporations or corporate bonds, asset-backed securities and U.S.

government securities .

All of the investments are denominated in United States dollars and are reported at a fair value of approximately $99.7 million with unrealized losses of $1.0 million in our condensed consolidated balance sheets .

Factors Affecting Our Performance

Impact of COVID-19 on our Business.

The COVID-19 pandemic has resulted in significant governmental measures being implemented to control the spread of the virus, including, among others, restrictions on travel and the imposition of remote or work from home conditions in many of the locations where we have offices, including our Shanghai office in April and May of 2022.

We have experienced a significant disruption of orders and logistics throughout the Asia supply chain as a result of the COVID-19 pandemic, and if the remote or work from home conditions in any of our locations continues for an extended period of time, we may experience delays in product development, a decreased ability to support our customers, reduced design win activity, and overall lack of productivity.

We are also experiencing significantly longer manufacturing times that, if they persist or worsen, could impact our ability to meet our customers’ demand for our solutions and negatively impact our revenue.

As a result of these factors, we have reduced our inventory purchases in the near term.

We have experienced a significant disruption of orders and logistics throughout the Asia supply chain as a result of the COVID-19 pandemic, and if the remote or work from home conditions in any of our locations are imposed again, or continues for an extended period of time, we may experience delays in product development, a decreased ability to support our customers, reduced design win activity, and overall lack of productivity.

Moreover, if there is a significant COVID-19 outbreak that impacts Samsung Electronic Corporation’s ability to manufacture our SoCs or our third-party contractors’ ability to assemble, test and ship our products, we could experience delays or reductions in our ability to ship products to our customers.

The pandemic may also impact our customers’ ability to manufacture their products, support their customers or reduce or delay demand for their products, which could, in turn, reduce such demand for our solutions.

The Global supply shortages, and the uncertainty in customer demand as well as the worldwide economy, in general, have continued as a result of the COVID-19 pandemic, and may be further exacerbated by the impacts of high inflation.

We may experience increased volatility in our sales and revenues in the near future.

Recently, some customers have indicated they are reducing their inventory levels, which may reduce such customers’ demand for our products.

Impact of Global Supply Shortages on Our Business.

Global supply shortages, and uncertainty in customer demand as well as the worldwide economy, in general, have continued as a result of the COVID-19 pandemic, and may be further exacerbated by the impacts of higher inflation.

Supply chain issues impact our business as they relate to both our suppliers and our customers.

With respect to our suppliers, we have in the past experienced supply constraints for certain chips from Samsung Electronics Corporation and we may in the future experience similar issues.

With respect to our customers, to the extent customers face supply chain issues with respect to other components needed to pair with our products in order to produce their end products, such customers may delay future orders of our products or hold inventory of our products for longer periods of time.

As a result, we may experience increased volatility in our sales and revenues in the near future, primarily owing to uncertainty around demand for semiconductor products, in general.

In addition, recently, some customers have indicated they are reducing their inventory levels, as some component lead times contract toward normal levels.

This may reduce such customers’ demand for our products.

The magnitude and duration of such volatility is uncertain and thus its impact on our business cannot be reasonably estimated at this time.

Ability to Capitalize on AI and Computer Vision Trends .

We expect that AI and computer vision functionality will become an increasingly important requirement in many of our current and future markets, including IP security, automotive, industrial and robotics, and certain consumer markets.

We expect that AI and computer vision functionality will become an increasingly important requirement in many of our current and future markets, including IoT, automotive, industrial and robotics markets.

As a result, we believe that our ability to develop advanced AI computer vision technology, enable and support customer product development in emerging applications, such as ADAS, advanced blind spot detection, object detection, classification and tracking, people recognition, retail analytics, and machine learning, and gain customer acceptance of our technology platform and solutions will be critical to our future success.

Moreover, achieving design wins, particularly for computer vision-centric applications in the IP security, automotive, industrial and robotics markets, is vital to our ability to generate revenue growth.

As such, we closely monitor design wins by customer and end market.

Moreover, achieving design wins, particularly for computer vision-centric applications in the IoT, automotive, industrial and robotics markets, is vital to our ability to generate revenue growth.

As such, we closely monitor design wins by our customers.

However, a design win may not successfully materialize into revenue, and even if it does result in revenue, the amount generated by each design win can vary significantly.

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Continued Concentration of Revenue by End Market .

Historically, our revenue has been significantly concentrated in a small number of end markets and we developed technologies to provide solutions for new markets as they emerged, such as the sports camera, IP security, aerial drone and automotive video recorder camera markets.

Since fiscal year 2018, the professional and consumer IP security camera markets and automotive markets, including the OEM and aftermarket video recorder market, have been our largest end markets and sales into these markets collectively generated the majority of our revenue.

Historically, our revenue has been significantly concentrated in a small number of end markets and we developed technologies to provide solutions for new markets as they emerged.

Since fiscal year 2018, the IoTmarkets and automotive markets have been our largest end markets and sales into these markets collectively generated the majority of our revenue.

We believe, however, that continued expansion into new markets is required to facilitate revenue growth and customer diversification.

We have recently introduced solutions to address emerging applications and markets, such as the incorporation of AI and computer vision functionalities for AI-enabled security cameras, AI-based driving applications and industrial and robotics markets.

While we will continue to seek to expand our end market exposure, we anticipate that sales to a limited number of end markets will continue to account for a significant percentage of our total revenue for the foreseeable future.

Our end market concentration may cause our financial performance to fluctuate significantly from period to period based on the success or failure of products that our SoCs are designed into as well as the overall growth or decline in the video capture markets in which we compete.

While we will continue to seek to expand our end market exposure, we anticipate that sales to a limited number of markets will continue to account for a significant percentage of our total revenue for the foreseeable future.

Our limited market concentration may cause our financial performance to fluctuate significantly from period to period based on the success or failure of products that our SoCs are designed into as well as the overall growth or decline in the video capture markets in which we compete.

In addition, we derive a significant portion of our revenue from a limited number of ODMs who build products on behalf of a limited number of OEMs and from a limited number of OEMs to whom we ship directly.

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We typically commence commercial shipments from 9 to 18 months following a design win;

however, in some markets, lengthier product and development cycles are possible, depending on the scope and nature of the project, such as in the automotive OEM market.

A portable consumer device typically has a product life cycle of 6 to 18 months, and an IP security camera typically has a product life cycle of 12 to 24 months.

however, in some markets, lengthier product and development cycles are possible, depending on the scope and nature of the project, such as in the automotive markets.

An IoT product typically has a product life cycle of 6 to 24 months.

We anticipate that product development and product life cycles will typically be longer than 24 months in the OEM automotive, Tier-1 automotive suppliers and robotics markets, as new product introductions typically occur less frequently in these markets.

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The following table sets forth a summary of our statement of operations for the periods indicated:

Three Months Ended July 31,

Six Months Ended July 31,

Three Months Ended October 31,

Nine Months Ended October 31,

(dollars in thousands)

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Loss from operations

Other income (expense), net

Other income, net

Loss before income taxes

Provision for income taxes

Provision (benefit) for income taxes

Net income (loss)

The following table sets forth operating results as a percentage of revenue of each line item for the periods indicated:

Three Months Ended July 31,

Six Months Ended July 31,

Three Months Ended October 31,

Nine Months Ended October 31,

Cost of revenue

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Loss from operations

Other income (expense), net

Other income, net

Loss before income taxes

Provision for income taxes

We derive substantially all of our revenue from the sale of HD and Ultra HD video and image processing SoC solutions to IP security camera OEMs, IP security camera ODMs, OEM or Tier-1 automotive suppliers, and consumer camera OEMs, either directly or through our distributors.

In recent years, our SoC solutions have been primarily used in camera markets, such as IP security, automotive video recorder, drone and wearable cameras.

Although we expect these human viewing camera markets, in particular the IP security and automotive video recorder markets, to continue to generate revenue for the foreseeable future, we have recently introduced new SoCs targeting emerging AI and computer vision applications in the IP security camera, OEM automotive, industrial and robotics markets.

Provision (benefit) for income taxes

Net income (loss)

We derive substantially all of our revenue from the sale of HD and Ultra HD video and image processing SoC solutions to IoT OEMs, IoT ODMs, OEM or Tier-1 automotive suppliers, either directly or through our distributors.

In recent years, our SoC solutions have been primarily used in IoT camera markets, such as IP security, automotive video recorder, drone and wearable cameras.

Although we expect these human viewing camera markets to continue to generate revenue for the foreseeable future, we have recently introduced new SoCs targeting emerging AI and computer vision applications in the IoT, automotive, industrial and robotics markets.

We derive a substantial portion of our revenue from sales made indirectly through one of our distributors, WT Microelectronics Co., Ltd., formerly Wintech Microelectronics Co., Ltd., or WT, and directly to one of our ODM customers, Chicony Electronics Co., Ltd., or Chicony.

The continued effects of the COVID-19 pandemic and persistent supply chain challenges may negatively affect our business performance and revenues this year.

The continued effects of the COVID-19 pandemic and persistent supply chain challenges have negatively affected our business performance and revenues this year, and may continue in the next fiscal year.

Our average selling prices fluctuate based on the mix of our solutions sold in a period which reflects the impact of both changes in unit sales of existing solutions as well as the introduction and sales of new solutions.

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Cost of revenue includes the cost of materials, such as wafers processed by third-party foundries, costs associated with packaging, assembly and testing, and our manufacturing support operations, such as logistics, planning and quality assurance.

Cost of revenue also includes indirect costs, such as warranty, inventory valuation reserves, amortization of developed technology and other general overhead costs.

Cost of revenue also includes indirect costs, such as warranty, inventory valuation reserves, adverse purchase commitments, amortization of developed technology and other general overhead costs.

We expect that our gross margin may fluctuate from period to period as a result of changes in customer mix, average selling price, product mix and the introduction of new products by us or our competitors.

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Research and development expense consists primarily of personnel costs, including salaries, stock-based compensation and employee benefits.

The expense also includes costs of development incurred in connection with our collaborations with our foundry vendors, costs and amortization of licensing intellectual properties from third parties for product development, costs of development for software and hardware tools, costs of fabrication of mask sets for prototype products, equipment expenses, outside services and allocated depreciation and facility expenses, net of any research and development grants.

The expense also includes costs of development incurred in connection with our collaborations with our foundry vendors, costs and amortization of licensing intellectual property from third parties for product development, costs of development for software and hardware tools, costs of fabrication of mask sets for prototype products, equipment expenses, outside services and allocated depreciation and facility expenses, net of any research and development grants.

All research and development costs are expensed as incurred.

We expect our research and development expense to increase in absolute dollars as we continue to enhance and expand our product features and offerings and increase headcount for new SoC development and development of computer vision technology, especially for the OEM automotive market.

Selling, General and Administrative

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We expect our selling, general and administrative expense to increase in absolute dollars as we continue to maintain the infrastructure and expand the size of our sales and marketing organization to support our business strategy of addressing new opportunities with our computer vision technology.

Other Income (Expense), Net

Other income, net, consists primarily of interests and yields from debt security investments and cash deposits with financial institutions, as well as miscellaneous subsidies granted from a foreign government.

Provision for Income Taxes

Other Income, Net

Other income, net, consists primarily of interest income and realized gains and losses from debt security investments, subsidies granted by a foreign government as well as gains and losses from foreign currency transactions and remeasurements.

Provision (Benefit) for Income Taxes

We are incorporated and domiciled in the Cayman Islands and our operations are subject to income taxes in the United States, China, Hong Kong, Germany, Italy, Japan, South Korea, Taiwan and other jurisdictions in which we do business.

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In the event that we change our determination as to the amount of deferred tax assets that can be realized, we will adjust our valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made.

Comparison of the Three and Six Months Ended July 31, 2022 and 2021

Three Months Ended July 31,

Six Months Ended July 31,

Comparison of the Three and Nine Months Ended October 31, 2022 and 2021

Three Months Ended October 31,

Nine Months Ended October 31,

(dollars in thousands)

Revenue increased for the three and six months ended July 31, 2022, as compared to the same periods in the prior fiscal year.

Revenue decreased for the three months ended October 31, 2022 but increased for the nine months ended October 31, 2022, as compared to the same periods in the prior fiscal year.

Continued adoption of our CV-based solutions, which have higher average selling prices, and increased NRE project services partially offset this decrease from fewer product unit shipments.

Cost of Revenue and Gross Margin

Three Months Ended July 31,

Six Months Ended July 31,

Three Months Ended October 31,

Nine Months Ended October 31,

(dollars in thousands)

Cost of revenue

The changes in cost of revenue for the three and six months ended July 31, 2022, as compared to the same periods in the prior fiscal year, were primarily due to higher manufacturing cost for CV-based solutions and an approximately $1.9 million adverse purchase order commitment recognized in the second quarter of fiscal year 2023, partially offset by lower volume of product unit shipments in the three and six months ended July 31, 2022 affected by supply chain disruptions in the semiconductor industry.

Gross margin increased for the three and six months ended July 31, 2022, as compared to the same periods in the prior fiscal year, primarily due to an increase in the percentage of our total revenue derived from higher gross margin CV-based solutions and increased sales into automotive markets, as well as higher margin NRE revenue contracts.

A customer concentration shift from the China region to the North America and Asia regions outside of China in the professional IP security camera market also contributed to an improvement in the gross margin.

The decreased cost of revenue for the three months ended October 31, 2022, as compared to the same period in the prior fiscal year, was primarily associated with the decrease in revenue, partially offset by approximately $0.6 million of amortization of acquisition-related intangible assets associated with the Oculii acquisition and $0.6 million of adverse purchase order commitments recognized in the third quarter of fiscal year 2023.

The increased cost of revenue for the nine months ended October 31, 2022, as compared to the same period in the prior fiscal year, was primarily due to $1.8 million of amortization of acquisition-related intangible assets associated with the Oculii acquisition and $2.5 million of adverse purchase order commitments recognized in fiscal year 2023, partially offset by lower volume of product unit shipments driven by customer efforts to revert their inventory closer to pre-pandemic levels, as component lead times contract.

Gross margin decreased slightly for the three months ended October 31, 2022, as compared to the same period in the prior fiscal year, primarily due to the amortization of acquisition-related intangible assets as well as additional charges from adverse purchase order commitments.

For the nine months ended October 31, 2022, the slight increase in gross margin was primarily attributable to an increase in the percentage of our total revenue derived from higher gross margin CV-based solutions and higher margin NRE revenue contracts, partially offset by the impact from the amortization of acquisition-related intangible assets and adverse purchase order commitments.

Research and Development

Three Months Ended July 31,

Six Months Ended July 31,

Three Months Ended October 31,

Nine Months Ended October 31,

(dollars in thousands)

Research and development

Research and development expense increased for the three and six months ended July 31, 2022, as compared to the same periods in the prior fiscal year, primarily due to increased personnel costs, engineering-related expenses and SoC development cost.

Personnel costs increased by approximately $8.4 million and $17.0 million for the three and six months ended July 31, 2022 , respectively, as a result of higher stock-based compensation expense and an increase of 68 employees, including 44 engineering headcount added from our acquisition of Oculii Corp, or Oculii, in the fourth quarter of fiscal year 2022.

Engineering-related expenses, including costs and depreciation of equipment and tools, amortization of licensed intellectual property , outside services and facility related expenses in support of new SoCs and related applications, increased by approximately $2.9 million and $4.2 million, respectively.

Research and development expense increased for the three and nine months ended October 31, 2022, as compared to the same periods in the prior fiscal year, primarily due to increased personnel costs, engineering-related expenses and SoC development cost.

Personnel costs increased by approximately $7.1 million and $24.0 million for the three and nine months ended October 31, 2022 , respectively, as a result of higher stock-based compensation expense and an increase of 104 employees, including 44 engineering headcount added from our acquisition of Oculii in the fourth quarter of fiscal year 2022.

Engineering-related expenses, including the cost and depreciation of equipment and tools, amortization of licensed intellectual property , outside services and facility related expenses in support of new SoCs and related applications, increased by approximately $2.1 million and $6.5 million, respectively.

The increases in research and development expense were also attributable to increased SoC development cost due to the timing and number of chips in development.

During the three and six months ended July 31, 2022, SoC development cost increased by approximately $1.5 million and $0.3 million, respectively .

During the three and nine months ended October 31, 2022, SoC development cost increased by approximately $2.3 million and $2.6 million, respectively .

Selling, General and Administrative

Three Months Ended July 31,

Six Months Ended July 31,

Three Months Ended October 31,

Nine Months Ended October 31,

(dollars in thousands)

Selling, general and administrative

Selling, general and administrative expense increased for the three and six months ended July 31, 2022, as compared to the same periods in the prior fiscal year, primarily due to increased personnel costs, professional services and increased facility-related expenses.

Selling, general and administrative expense increased for the three and nine months ended October 31, 2022, as compared to the same periods in the prior fiscal year, primarily due to increased personnel costs, sales and administration-related expenses as well as the amortization of acquisition-related intangible assets associated with the Oculii acquisition.

Personnel costs increased by approximately $1.9 million and $7.6 million, respectively, as a result of higher stock-based compensation expense and an increase of 23 employees.

The increases were also attributable to approximately $0.7 million and $1.6 million, respectively, of additional professional services and facility-related expenses to support our business development in the IP security, automotive and robotics markets .

Other Income (Expense), Net

Three Months Ended July 31,

Six Months Ended July 31,

The increases were also attributable to approximately $0.7 million and $1.5 million, respectively, of additional sales and administration-related expenses to support our business development .

For the three and nine months ended October 31, 2022, the amortization of acquisition-related intangible assets was approximately $0.5 million and $1.4 million, respectively.

The increases were partially offset by approximately $1.6 million, respectively, of less professional services associated with the acquisition of Oculii in the prior fiscal year.

Other Income, Net

Three Months Ended October 31,

Nine Months Ended October 31,

(dollars in thousands)

Other income (expense), net

The decreases in other income (expense), net, for the three and six months ended July 31, 2022, as compared to the same periods in the prior fiscal year, were primarily due to the full liquidation of our debt security investments in fiscal year 2022 to finance the acquisition of Oculii, resulting in reduced interests and yields from investments.

In July 2022, we resumed our investment in debt securities with $100.0 million of investments in money market funds and debt securities of corporations.

Provision for Income Taxes

Three Months Ended July 31,

Six Months Ended July 31,

Other income, net

The increase in other income, net, for the three months ended October 31, 2022, as compared to the same period in the prior fiscal year, was primarily due to higher interest income from our debt security investments and subsidies received from a foreign government, as well as additional gains from foreign currency transactions and remeasurements, partially offset by lower realized gains from our investments.

For the nine months ended October 31, 2022, the increase in other income, net, as compared to the same period in the prior fiscal year, was primarily due to additional gains from foreign currency transactions and remeasurements and subsidies received from a foreign government, partially offset by lower interest income and realized gains from our debt security investments as a result of the full liquidation of our investments in the third quarter of fiscal year 2022 to finance the acquisition of Oculii.

In July 2022, we resumed our investments in money market funds and debt securities.

Provision (Benefit) for Income Taxes

Three Months Ended October 31,

Nine Months Ended October 31,

(dollars in thousands)

Provision for income taxes

Provision (benefit) for income taxes

Effective tax rate

The quarterly income taxes reflect an estimate of the corresponding fiscal year’s annual effective tax rate and include, when applicable, adjustments from discrete tax items arising in that quarter.

The increases in income tax expense for the three and six months ended July 31, 2022, as compared to the same periods in the prior fiscal year, were primarily due to a decrease in the U.S.

federal research tax credit, a decrease in tax benefits from excess stock-based compensation deductions as well as an increase in non-deductible stock-based compensation, partially offset by a decrease in the proportion of profits generated in higher tax jurisdictions.

The quarterly income taxes reflect an estimate of the corresponding fiscal year’s annual effective tax rate and include, when applicable, adjustments from discrete tax items arising in the quarter.

The increases in income tax expense for the three and nine months ended October 31, 2022, as compared to the same periods in the prior fiscal year, were primarily due to a decrease in the U.S.

federal research tax credit, a decrease in tax benefits from excess stock-based compensation deductions, and an increase in non-deductible stock-based compensation, partially offset by a decrease in the proportion of profits generated in higher tax jurisdictions.

Liquidity and Capital Resources

As of July 31, 2022 and January 31, 2022, we had cash, cash equivalents and marketable debt securities of approximately $197.9 million and $171.0 million, respectively.

As of October 31, 2022 and January 31, 2022, we had cash, cash equivalents and marketable debt securities of approximately $199.0 million and $171.0 million, respectively.

We invest in highly-liquid, short-term marketable debt securities and hold these investments as available-for-sale securities.

As of July 31, 2022, these securities had a fair value of approximately $100.0 million with immaterial unrealized losses caused by market fluctuations.

As of October 31, 2022, these securities had a fair value of approximately $99.7 million with unrealized losses of approximately $1.0 million caused by market fluctuations.

For the three and nine months ended October 31, 2022, there was approximately $0.7 million and $0.8 million, respectively, of interest income and realized gains recorded in other income, net in the condensed consolidated statements of operations.

The current inflationary environment in the United States and resulting high interest rates have not had material impact on our investment portfolio and financial position.

The following table summarizes our cash flows for the periods indicated:

Six Months Ended July 31,

Nine Months Ended October 31,

(in thousands)

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Net cash provided by financing activities

Net increase in cash, cash equivalents and restricted cash

Net increase (decrease) in cash, cash equivalents and restricted cash

Net Cash Provided by Operating Activities

Net cash provided by operating activities increased for the six months ended July 31, 2022, as compared to the same period in the prior fiscal year, primarily due to higher collection from accounts receivable associated with the timing of sales and lower inventory purchases due to supply chain disruptions in the semiconductor industry, partially offset by decreased liabilities associated with employee benefit payments and the timing of payments to our suppliers.

Net cash provided by operating activities increased for the nine months ended October 31, 2022, as compared to the same period in the prior fiscal year, primarily attributable to higher collections of accounts receivable associated with the timing of sales and lower inventory purchases due to improved supply chain constraints in the semiconductor industry, partially offset by increased net loss adjusted for certain non-cash items and decreased liabilities associated with employee benefit payments and the timing of payments to our suppliers.

Net Cash Provided by (Used in) Investing Activities

Net cash used in investing activities increased for the six months ended July 31, 2022, as compared to net cash provided by investing activities for the same period in the prior fiscal year, primarily due to approximately $9.6 million less net cash receipts from debt security investments after a full liquidation of investments in fiscal year 2022 and approximately $4.3 million higher cash payments for purchase of tangible and intangible assets, partially offset by an approximately $0.7 million claim from an escrow account associated with the acquisition of Oculii.

Net Cash Provided by Financing Activities

Net cash provided by financing activities decreased for the six months ended July 31, 2022, as compared to the same period in the prior fiscal year, primarily due to approximately $3.1 million less cash proceeds from option exercises and employee stock purchase withholdings as a result of lower average stock price in the current fiscal year.

Net cash used in investing activities increased for the nine months ended October 31, 2022, as compared to net cash provided by investing activities for the same period in the prior fiscal year, primarily due to approximately $284.0 million less net cash receipts from debt security investments after a full liquidation of investments in fiscal year 2022 and approximately $6.8 million higher cash payments for purchase of property and equipment and licenses, partially offset by an approximately $0.7 million claim from an escrow account associated with the acquisition of Oculii.

Net C ash Provided by Financing Activities

Net cash provided by financing activities decreased for the nine months ended October 31, 2022, as compared to the same period in the prior fiscal year, primarily due to approximately $4.3 million less cash proceeds from option exercises and employee stock purchase withholdings, as well as an additional $1.1 million payment for purchase of licenses.

Stock Repurchase Program

No ordinary shares were repurchased during the six months ended July 31, 2022.

No ordinary shares were repurchased during the nine months ended October 31, 2022.

On May 27, 2022, our Board of Directors approved an extension of the current share repurchase program for an additional twelve months ending June 30, 2023.

The repurchase program does not obligate us to acquire any particular amount of ordinary shares, and it may be suspended at any time at our discretion.

As of July 31, 2022, there was approximately $49.0 million remaining available for repurchases under the repurchase program through June 30, 2023.

As of October 31, 2022, there was approximately $49.0 million remaining available for repurchases under the repurchase program through June 30, 2023.

Operating and Capital Expenditure Requirements

As of July 31, 2022, we had cash, cash equivalents and marketable debt securities of approximately $197.9 million.

As of October 31, 2022, we had cash, cash equivalents and marketable debt securities of approximately $199.0 million.

We believe that our existing cash balances will be sufficient to meet our anticipated cash requirements through at least the next 12 months.

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the emergence of competing or complementary technologies or products;

global economic and political conditions;

global economic and political conditions, including higher inflation and trade restrictions;

the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights or participating in litigation-related activities;

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Manufacturing Purchase Obligations

As of July 31, 2022, we had purchase obligations with our independent contract manufacturers of $68.3 million.

As of October 31, 2022, we had purchase obligations with our independent contract manufacturers of $47.9 million.

Except as described above with respect to the manufacturing purchase obligations, there were no other material changes in our contractual obligations, commitments and contingencies from those disclosed in our Annual Report on Form 10-K for the fiscal year ended January 31, 2022.

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Off-Balance Sheet Arrangements

As of July 31, 2022, we did not engage in any off-balance sheet arrangements, including the use of structured finance, special purpose entities or variable interest entities.

As of October 31, 2022, we did not engage in any off-balance sheet arrangements, including the use of structured finance, special purpose entities or variable interest entities.

Recent Authoritative Accounting Guidance

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis